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Conceptual Framework Project Begins to Move Forward

The FASB is beginning to work on a plan to develop guidelines for writing standards that address changes in value of a balance sheet’s assets and liabilities. The plan from the FASB research staff is little more than a general outline that describes the initial phase and its focus on the information that matters to shareholders and creditors about assets and liabilities.

The FASB, at its November 19, 2014, meeting, endorsed a plan from its research staff to begin work on a process for writing guidelines for standards dealing with the changes in value of a balance sheet’s assets and liabilities.

The guidelines are part of what the FASB calls its Conceptual Framework, the overarching set of principles that aren’t formally part of U.S. GAAP but are the reference point the board uses as it develops standards.

The staff’s plan is little more than a general outline that describes the initial phase as focusing on the information that matters to shareholders and creditors about assets and liabilities. The subsequent steps are expected to look at the information that’s provided by the methods used for measuring changes in value; how the information from financial statement line items and footnotes might be used by investors and creditors; and the issues the board will consider when it decides what type of information is appropriate for a given standard.

“We’re very early, it’s going to develop as we go along,” said Ronald Lott, the FASB staff’s research director.

In a separate, but related discussion, the FASB is planning on November 24 to talk about what it calls the presentation phase of the Conceptual Framework project. Board members plan to discuss how individual items should be aggregated into the amounts on financial statements. In June, the FASB determined it would look at the measurement and presentation aspects of the Conceptual Framework together because of their importance to all standard-setting initiatives.

The relatively brief November 19 meeting on measurement didn’t develop far beyond an abstract discussion about the types of issues the FASB expects to contend with as it proceeded with the project. The project, which will focus on what the FASB calls subsequent measurement, involves the recurring measurements that may change on the balance sheet from one quarter to the next or from year to year.

The FASB wants to focus on subsequent measurement partly because it’s a more difficult issue to contend with and partly because changes in value will be reflected in a company’s earnings statement.

“It’s going to be different for different assets and liabilities,” Lott said.

“It made sense to me if we’re going to have different measurement and remeasurement categories, you’ve got to tie it to something,” FASB Vice Chairman Kroeker said. “We better figure what’s different about the nature of different assets or how they’re used.”

FASB member Marc Siegel said the board needed to consider how its Conceptual Framework project would lay groundwork for development of individual standards, particularly the cost-benefit analysis the accounting board has to do with each project.

“I just encourage us to think about graphical representations of where this starts and where a standards-level project might begin to shortcut some people who might be thinking about it with outcomes in mind,” Siegel said.

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